Investors would like to believe that a portfolio which is diversified across both developed and emerging markets would continue to perform well, even during a U.S. recession, because Chinese economic growth is creating insatiable demand for raw materials in particular.

The U.S. accounts for about 25 percent of world output and in past business cycles investors have suffered as world stockmarkets have weakened when U.S. economic growth has slowed, as it has this year, or slipped into recession.

"A lot of my colleagues are arguing that it is different this time around," said Andrew Milligan, head of global strategy at the investment arm of UK insurer Standard Life Plc

It's true.

It used to be that, when the US sneezed, the world caught the flu. We only need look within our lifetimes to see that, after the 1987 market crash and the (chronologically, not causitively) subsequent economic depression in the US, the world suffered as well (after a bubble in the Japanese markets which caused them to have to shovel money into assets overseas...but that's another story).

A curious thing happened in this past Bush recession: other markets strengthened. Led by China and India, Asian markets absorbed our economic hits in 2001 and 2002 (and a mini-hit in 2003), and took advantage of them by expanding their trade with the US (our trade deficit went from $400 billion to $700 billion.)

There are probably many reasons for this, of course. The one that occurs to me most quickly is the fact that, in the 1990s, the global economic playing field levelled.

No longer was it necessary for a country to have access to vast resources in order to grow economically. Information was the engine of growth now, and information had no borders. The Internet saw to that.

Which is why when you call Verizon to fix your DSL service (don't get me started!), you now either speak to someone in Mumbai or Mexico City, depending on the operating system you use: there's no need for a physical presence inside our borders, because the cost of the call is nominal when you factor in wage differentials, and the same database of information is available to Ricardo or Sajni as it is to Joe or Claire.

Too, the ability to digest data and churn out information no longer meant being physically on Wall Street to cop tips while out at a luncheon: it was there, out in the public, which is why London, with its easier banking and stock regulations is now the financial capital of the world, despite the New York Stock Exchange being the single largest exchange in the world.

In other words, the new economic model rewards efficiency over resources. Do it faster, cheaper, with less waste, and you're going to make money.

The Europeans and Asians have been working in that mode for centuries now. Ever been in a British shower?

Bill Clinton, during his administration, foresaw this. Like him or not, he was correct when he stressed the need to retrain and re-educate American workers as their jobs went overseas, thanks in part to NAFTA but overwhelmingly because of this economic trend of rewarding efficiency.

In a land where it used to make sense to drive an hour in each direction to a job, it makes less sense: companies can't compete when they have to take an economic hit every morning there's a traffic jam.

In a land where it used to make sense to drive lumber across country to build a house, it no longer makes sense: the price of fuel is way too high, and the inefficiencies of wood construction are magnified when that fuel cost is added in.

In a land where Playskool used to manufacture toys in Milwaukee and ship them worldwide, it no longer makes sense when China can do it far cheaper (and far more dangerously!), and still keep retail prices affordable.

Do you see how ridiculous that is? A toy is designed here in the States, and it's still cheaper to have a factory in China (buying substantially all its raw materials from the greatest resource store in the world, America) build that toy and ship it here to sell in a Tyos R Us in Paramus, NJ, a round trip of some 15,000 miles, give or take.

What does this mean to us?

It means that we'll be shipping more and more raw materials overseas. It means that, as China and other Asian and European countries see their citizens becoming wealthier, American retail markets will have to fight harder (meaning higher prices) for things we take for granted. Like toys. Like cars. Like clothing.

It means, in short, a forced move to the progressive agenda of doing more with less, of conservation, and of progressive tax codes.

Will that happen? Yes.:

Large new sources of demand have emerged in China, India and elsewhere, and may be sufficient to counter the impact of a U.S. recession, argued Milligan, who directs investment strategy at Standard Life Investments which has about $280 billion in assets under management.

In addition, in the event of a U.S. recession, the Chinese government could increase its spending to ensure China's annual economic growth does not slip below its recent average of around 10 percent before the 2008 Beijing Summer Olympics, he said.

World stockmarkets have recovered since a global credit and liquidity crisis in mid-summer, and in some countries stocks have rallied to new highs, partly because of the belief that Chinese economic growth is offsetting the impact of a weak housing sector on the U.S. economy.

Will we still have impact? Yes. As noted, the US is the single largest economic bloc in the world, roughly 25% of the global economy. Together, China and the other Asian countries make up nearly that much.

But China's economy alone is growing at an annual 10.5% rate, while the US can barely muster 2.5-3% under the failed policies of the Bush administration (thank the tax cuts!). China is poised within the next two years to become the world's third largest economy, surpassing Germany and lagging only England and the US.

Then all hell breaks loose. While the US could wage an economic "Cold War" with China, ultimately, the momentum is in China's hands: to our 300 million people, China can mobilize over 1.3 billion: that's the United States, PLUS one billion more folks.

It's a war we cannot win, and thanks to the loss of prestige engendered by this ridiculous invasion of Iraq and the utter insolence and hubris demonstrated by the Bush administration (most recently in Russia), we can't even be assured that we can steal a chunk of it away from China now.

"Liberals got women the right to vote. Liberals got African-Americans the right to vote. Liberals created Social Security and lifted millions of elderly people out of poverty. Liberals ended segregation. Liberals passed the Civil Rights Act, the Voting Rights Act. Liberals created Medicare. Liberals passed the Clean Air Act, the Clean Water Act. What did Conservatives do? They opposed them on every one of those things...every one! So when you try to hurl that label at my feet, 'Liberal,' as if it were something to be ashamed of, something dirty, something to run away from, it won't work, Senator, because I will pick up that label and I will wear it as a badge of honor." -- Matt Santos, The West Wing